Redfin Hooks $70.9 Million for Software-Powered Home Sales

Deciding against an IPO for now, online real-estate broker Redfin Corp. raised another $70.9 million and will continue to stay private as it expands its software-powered real-estate business across the U.S.

The round was led by Wellington Management Co. and Glynn Capital Management, among others, and includes Brothers Brook, Annox Capital Management and previous investors Tiger Global Management and T. Rowe Price.

“We are making so many bets and some will work and some will not, and we don’t think a retail investor would be as comfortable with the ups and downs in our business as an institutional investor involved in private sale,” said Chief Executive Glenn Kelman. “We can have good quarters and bad quarters and not worry about it quite as much because year over year, the company is doing so well.”

He would not disclose valuation, other than to say it was up from Redfin's $50 million round raised in November 2013. That financing was led by Tiger Global and T. Rowe Price and including previous investors Greylock Partners, Globespan Capital Partners, DFJ Venture Capital, Vulcan Capital and Hillman Co.

Seattle-based Redfin enables users to search for or list a home, find an agent, schedule tours or take a virtual tour and sign documents electronically as the home moves through the sale process, all online.

Rather than having real estate agents who work on commission, Redfin hires them, arguing that customers get better service that way.

Traditionally, home sellers pay a commission of 6%, which is split between the agents for the buyer and the seller. Redfin, however, keeps the commission and refunds a portion of it to the buyer. Redfin’s agents, who are salaried, get bonuses based on whether Redfin customers are satisfied with their transactions.

In the past year, Redfin has doubled the number of markets it serves and now claims 48 major U.S. markets. The company has developed a more-repeatable business model, Mr. Kelman said, and has a better idea now of how long it takes to open a brokerage in a new city, how many agents to hire and how quickly the business can become profitable.

It also continues to improve its software, adding visualization technology that lets prospective buyers take an indoor tour of a property, and using data to track, for instance, when customers need help in a home search and when an offer they made was rejected.

“We’d never have had the money to do that if we didn’t get the support,” Mr. Kelman said.

Growth-stage investors such as T. Rowe Price and Tiger Global have increasingly backed private companies in the last two years, hoping to capture valuation growth before such companies go public. Those firms have become more active in advising Redfin, Mr. Kelman said, and encouraged the company to stay private.

“They’d like to see the company grow as a much as possible as a private company for a number of reasons, and one of them is we can’t have a long-term focus [as a public company]," he said.

Redfin may also make more acquisitions, he said. The company in October acquired Walk Score, which scores neighborhoods based on what residents can walk to.

This latest round is Redfin’s seventh institutional financing, according to VentureWire records, and takes total funding to $165.9 million. Mr. Kelman declined to discuss timing for an IPO, saying “we’ll do it when we need the money or when money’s cheap.”

The real estate sector is gaining appeal for venture investors, with 11 deals for $118.5 million through the first three quarters of 2014. That's the largest number of deals and the most investment since 2000, according to Dow Jones VentureSource.